KeyStone’s Your Stock Our Take is BioSyent Inc. (RX:TSX-V) Our Star is TeraGo Inc. (TGO:TSX), & Our Dog is Encana Corporation (ECA:TSX)
This week in our Your Stock, Our Take segment we look at BioSyent Inc. (RX:TSX-V), a specialty pharmaceutical company engaged in developing pharmaceutical and healthcare products. The company has been a micro-cap success story rising from below a $1.00 to the $10.00 range – a listener asks if we still like the stock. Our Star of the week is TeraGo Inc. (TGO:TSX), which operates five data centres serving over 3,000 business customers across Canada. It is the company’s first mover advantage into 5G spectrum that has driven an almost 30% move in the stock over the past 2-weeks. Finally, our Dog of the week is Encana Corporation (ECA:TSX), a leading North American diversified energy producer. The company recently reached an agreement to sell its San Juan assets, located in New Mexico for US$480 million. Since the announcement, the stock has dropped 16%. Is it a Dog or an opportunity?
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Now, let’s dig into the show.
I welcome back my co-host, KeyStone’s VP and Senior Analyst, Aaron Dunn.
Your Stock, Our Take
Biosyent is a company you have profiled in your cash rich reports. The stock did very well then has plateaued in its current range. What do you think of it now?
- Just signed as “The Aussie”.
Your Stock, Our Take
BioSyent Inc. (RX:TSX-V)
Current Price: $9.67
Market Cap: $140.4 million
What does the company do?
BioSyent Inc. is a specialty pharmaceutical company engaged in developing pharmaceutical and healthcare products. Its products include FeraMAX 150, Cathejell Jelly, FeraMAX Powder, RepaGyn, Proktis-M, Aguettant System and Cysview. The company through its subsidiaries sources acquires or in-licenses pharmaceutical products and markets the products. Geographically all the activities are functioned through the region of Canada.
Key Points:
Much of the movement of the stock seems to be uncorrelated with releases the company makes. For example, between January 31st and March 1st, the stock dropped from $9.60 down to $8.65 and back up to $9.65. That is a loss and gain of nearly 12% during a quiet period for the company. Since then, it has had some ups and downs, at one point trading as high as $10.25 and at one point trading as low as $9.28, but it has continued to return and hover around the $9.70 range.
Recent Quarterly Financials:
- Revenue for the second quarter ended June 30, 2018 was $5.91 million, an increase of 5% over the prior year period.
- Net income grew to $1.62 million in the second quarter of 2018, compared to $1.55 million in the second quarter of 2017, up 4%.
- Adjusted EBITDA was $2.16 million in the second quarter of 2018, compared to $2.11 million in the second quarter of 2017, up 2%.
Our Take:
P/E: 25.45x
P/EBITDA: 19.34x
Current Ratio: 9.26
Cash Ratio: 1.78
Little to no debt
Net Cash: $4.9 million
The company is showing virtually no growth at either its top or bottom lines, with revenue growth of 5% and EBITDA growth of 2%.
For the three years ending December 31, 2017, the company experienced a compound annual revenue growth rate (CAGR) of 19% – growth slowed in the last quarter to the 5% range which has concerned the market. The slowdown in the quarter was largely explained by a drop in International sales which can be volatile. In fact, International Pharmaceutical Revenues decreased by 31% versus Q2 2017 as an International Pharmaceutical order originally scheduled for Q2 2018 shipment was held back for shipping subsequent to quarter-end. Q2 2018 Canadian Pharmaceutical Net Revenues (the core business) rose by 16% versus Q2 2017.
Fully Diluted EPS for the Trailing Twelve Months ended June 30, 2018 was $0.38 as compared to $0.33 for the Trailing Twelve Months ended June 30, 2017.
Balance sheet is great – As at June 30, 2018, the company had cash, cash equivalents, and short term investments totaling $21 million or $1.45 per share.
The stock trades at 21 times earnings cash out – not cheap and just slightly expensive given the growth. Near-term we consider the stock to be trading at fair value. If growth were to creep up to the 20-25% range (from the 15% range), we would give the stock serious consideration.
We would also like to see further diversification from its highly successful FeraMAX iron supplement line – it is gradually happening, but diversification would lessen the risk.
Weekly Star
TeraGo Inc. (TGO:TSX)
Current Price: $10.38
Market Cap: $161.3 million
Star Performance:
The stock is up 28% in the last two weeks from $8.03 on October 3rd. Additionally, the stock is up 41% in the last 5-weeks and up 136% year-to-date.
What does the company do?
TeraGo manages over 3,000 cloud workloads, operates five data centres in the Greater Toronto Area, the Greater Vancouver Area, and Kelowna, and owns and manages its own IP network. The Company serves over 3,000 business customers in 46 major markets across Canada including Toronto, Montreal, Calgary, Edmonton, Vancouver and Winnipeg.
The big driver, however is the potential in 5G Wireless technology – 5G technology is expected to be upwards of 40x faster than traditional millimetre wave transmission technology. TeraGo is one of the largest holders of millimetre wave spectrum in Canada’s largest markets.
TeraGo owns and leases a national spectrum portfolio of exclusive 24GHz and 38GHz wide-area spectrum licences including 2,120 MHz of spectrum across Canada’s 6 largest cities. TeraGo provides businesses across Canada and internationally with cloud, colocation and connectivity services.
What is driving the stock?
On June 18th, TeraGo announced that it had closed a $6.9 million bought deal offering at a price of $5.30 per share. The company planned on using the proceeds to fund its acquisition of six 24 GHz spectrum licenses for which it is currently leasing.
On September 21st, the company announced it had entered into a definitive agreement to acquire Mobilexchange Spectrum for $5.7 million. The acquisition is being funded by the previous bought deal offering. In fact, Mobilexchange Spectrum are the owners of the 24GHz licenses they were planning on acquiring and are currently leasing.
On October 11th, TeraGo announced that it will be initiating a technical trial for 5G technology on its 24GHz spectrum in the Greater Toronto Area. This makes it one of the early-movers in attempting to introduce 5G services to the Canadian market.
Financial Results
Q2 2018 compared to Q2 2017
- Revenue was $13.7 million compared to $13.9 million, down 2%.
- Net loss was $1.5 million compared to $1.1 million.
- On a diluted per share basis, a loss of $0.10 compared to a loss of $0.08
- Adjusted EBITDA of $3.123 million compared to $3.003 million, up 4%.
- On a diluted per-share basis, it maintained at approximately $0.21.
Conclusion:
P/E: -18.98 (negative earnings)
P/EBITDA: 11.92x
Current Ratio: 1.39
Cash Ratio: 0.84
D/E: 0.74
Fundamentally, from the core revenue producing business, there is not a whole lot to get excited about. Revenue and EBITDA has remained static for a number of years. Losses are increasing slightly. The underlying stories here are those relating to the company’s move into the Canadian 5G market. As a relatively early-mover as far as the Canadian market goes, it places TeraGo in the forefront of the next generation of wireless telecommunication.
The market recognized this, but the magnitude of the opportunity here is tough to quantify with certainty. The markets appears to see strong potential for future growth and the gains over the last week and year make TeraGo our star of the week!
Weekly Dog
Encana Corporation (ECA:TSX)
Current Price: $14.47
Market Cap: $13.781 billion
Dog Performance:
On October 3rd, the stock was trading for $17.31. Today, two weeks later, the stock is trading for $14.47, down 16%.
What does the company do?
Encana is a leading North American energy producer that is focused on growing its strong portfolio of diverse resource plays, held directly and indirectly through its subsidiaries, producing oil, natural gas liquids and natural gas.
What is driving the stock?
On October 1st, Encana announced that its wholly-owned subsidiary, Encana Oil & Gas Inc., has reached an agreement to sell its San Juan assets, located in New Mexico for US$480 million to Denver-based DJR Energy, LLC. Since the announcement, the stock has dropped 16% and no other updates have been announced.
Financial Results
Q2 2018 compared to Q2 2017
- Revenue was $1.277 billion compared to $0.937 billion, up 36%.
- Net income was a loss of $151 million compared to a gain of $331 million.
- On a diluted per share basis, a loss of $0.16 compared to a gain of $0.34
- Adjusted EBITDA of $603 million compared to $419 million, up 44%.
- On a diluted per-share basis, $0.63 compared to $0.43, up 47%.
- Dividends declared per common share held steady at $0.015.
From MD&A
During the first six months of 2018, Encana focused on executing its 2018 capital plan, maintaining operational efficiencies achieved in 2017 and minimizing the effect of inflationary costs. Higher revenues in the first six months of 2018 compared to 2017 resulting from higher liquids production volumes and benchmark prices.
Conclusion:
P/E: 17.02x
P/EBITDA: 6.67x
Current Ratio: 0.73
PP&E makes up 62% of Total Assets.
D/E: 0.65
Strong revenue and operating income growth are a good sign, but numerous finance costs and significant depreciation (50% of EBITDA), as well as for exchange loss, bring the company into significant net losses. This is unusual for the company, which usually is able to stay profitable. Encana’s balance sheet is quite illiquid, with a current ratio of just 0.73 and its PP&E making up 62% of Total Assets. Regardless, the drops experienced by the company this week make it our dog of the week.